Free Trade

Elizabeth Warren's Pitch for 'Economic Patriotism' Is Full of Intellectual Dishonesty and Economic Fallacies

Warren needs to take a lesson from Leonard Read's "I, Pencil."


Sen. Elizabeth Warren (D–Mass.) is promising to protect Americans from the scourge of…pencils?

In a new video posted to Twitter over the weekend, the presidential candidate promises to create a new federal agency that would expand on the protectionist measures undertaken by Donald Trump. She's even borrowing Trumpian rhetoric for the project, which she calls "economic patriotism," as she promises that a Warren administration would put the interests of American workers first.

Warren's attack on corporations that supposedly harm Americans by shifting jobs overseas is full of intellectual dishonesty and economic fallacies. Rather than making a case for greater government involvement in the corporate boardrooms of America, the video succeeds only at highlighting how misinformed and misguided such interventions are, regardless of whether they are executed by Trump or Warren.

"There are a lot of giant companies who like to call themselves 'American,' but face it: they have no loyalty or allegiance to America," she says in the video.

As proof, Warren points to the "famous no. 2 pencil," which is mostly manufactured in Mexico and China. Her video doesn't make clear why pencils should have to be made in America—or why that lack of good, pencil-making jobs in America is a problem.

That Warren chose to use pencils to illustrate the supposed need for "economic patriotism" is darkly hilarious to anyone familiar with "I, Pencil," Leonard Read's 1958 parable about the merits of free markets and comparative advantage. Reed's lesson is that no one on the planet has the means or knowledge to make an item as mundane and ubiquitous as a simple pencil. A pencil requires wood, graphite, brass, and rubber, but each component part is the result of supply chains that might stretch around the world—from the forests of the Pacific Northwest to the mines of Mexico to the factories of Indonesia.

"Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me," Read wrote in the role of the eponymous pencil. "Each one wants me less, perhaps, than does a child in the first grade."

And yet we have pencils. Tons of them. Not only that, but the process for obtaining and combining those various component parts is so efficient—despite "the absence of a master mind" directing all those activities, Read notes—that you can buy dozens of pencils for no more than a few dollars. The simple pencil is a miracle of the modern world, and of trade that crisscrosses national borders.

What is true about pencils is true about almost everything else you buy too. There's not really any such thing as an "American" or "foreign" automobile anymore. Not when the world's biggest BMW plant is in South Carolina, and when the assembly line for a single car seat might zig-zag across the U.S.-Mexico border five or six times. The iPhone is engineered in the United States, is manufactured in China, and contains components sourced all over the world.

That Warren fails to grasp this—or that she cynically believes voters don't grasp it—makes her no better than Trump when it comes to trade policy. Indeed, Trump's use (and abuse) of executive power to implement his own myopic and self-defeating trade policies may have only paved the way for a more competent protectionist like Warren, if she ends up in the White House.

It's worth noting that Warren's proposal for a new federal department to oversee her "economic patriotism" scheme would potentially streamline some government functions. She says the new Department of Economic Development would replace the Commerce Department and "a handful of other government agencies." Consolidation of the federal bureaucracy can be a good way to root out unnecessary overlap between existing agencies, but this seems like an effort at reorganizing a bunch of things the feds shouldn't be doing in the first place.

Beyond that, there's little truth to the claim that American manufacturing has been hollowed out by trade. Foreign investment in American manufacturing reached record highs in 2018, and American manufacturing output has tripled since 1980.

Warren's proposal smacks of a disingenuous attack on the benefits of free markets, with Warren trying—and failing—to make American corporations seem like a foreign threat.

"The truth is," she claims in the video," these American companies have only one real loyalty, and that's to their shareholders, a third of whom are foreign investors."

What about other two-thirds of those shareholders Warren is trying to demonize? Well, they would be Americans, of course.